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ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows:
Capacity 60% 100%
Total production costs £12,280 £15,120What is the budgeted total production cost if the company operates at 85% capacity?
ANSWER SHOULD BE £13,680
The way I am doing the qn is by creating a FIXED budget where 10,000 units equals to 100% of activity and then flexed budget… but whatever my method it is wrong please can you help John
The costs are not completely variable (otherwise the cost per % would be the same for both of the capacities given). They are also obviously not oompletely fixed.
There are semi variable (part variable and part fixed) and therefore you need to use the high low method to calculate the variable cost per % and the fixed cost.
If you are not sure about the high low method you will find it in the lecture notes (and the lecture that goes with them) at the end of the chapter on cost classification and behaviour.
H 15120 – 10000 ( capacity 10000 units x 100%)
L 11280 – 6000 ( capacity 10000 units x 40%)
3840 & 4000VC per unit : 3840/4000 = $0.96
FC : 15120 – (10000 x $0.96)=$5520
if operates capacity of 85% : 10000 x 85%=8500 x $0.96=$8160y = a + b x
y= 13680 + 0.96xanswer is $13,680
thank you
hi
how did u get calculate
H15120 – 10000 ( capacity 10000 units x 100%)
L 11280 – 6000 ( capacity 10000 units x 40%)
3840 & 4000VC per unit : 3840/4000 = $0.96
FC : 15120 – (10000 x $0.96)=$5520
if operates capacity of 85% : 10000 x 85%=8500 x $0.96=$8160for low the costs is 12280£ and you have put 11280£.
can u plz help me to calculate how to get
H15120 – 10000 ( capacity 10000 units x 100%)
L 11280 – 6000 ( capacity 10000 units x 40%)
3840 & 4000i have been solving this problem for 2 hours
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